Interest Only Home Equity Loans

Interest only home equity loans are an option for the homeowner that needs to have low initial payment amounts for a home equity loan. If you need cash from your home equity but are concerned your budget cannot handle the payments at the moment, an interest only home equity loan could be right for you.

This home equity loan is different from your standard home equity loan; during an initial period the borrow makes interest only payments that do not include any of the loan principal. This interest only period varies by home equity lender; interest only home equity loans are interest only for one to five years.

At the end of the interest only period the loan is converted to a fully amortized, traditional home equity loan and the borrow will see their monthly payment go up significantly to include loan principal. The payments will be much higher at this point because the interest only period is gone from the amortization schedule;

you now have to pay back more in less time compared to a standard home equity loan.

If you are in the process of selling your home and need to make repairs, you could benefit from an interest only home equity loan. This loan would allow you to make the necessary repairs to sell your home while keeping more cash in your pocket. After you sell the home you can pay back your primary mortgage and the home equity loan.

Interest only loans of any kind have the potential for financial peril if abused. Interest only loans are not interest only forever; the lender is going to want their loan principal back at some point, and when this happens the monthly payments will go up significantly. This loan secured by your home like your primary mortgage; If you fall behind on your payments the lender can take your home. To learn more about using interest only loans while minimizing the risk, register for a free mortgage guidebook.